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U.S. Securities and Exchange Commission

Pursuant to Section 509(5) of the National Securities Markets Improvement Act of 1996

Report on Promoting Global Preeminence of American Securities Markets

October 1997

Table of Contents

Executive Summary and Introduction

I. The Role of Accounting Standards in Capital Market Regulation

II. Efforts To Develop a High-Quality, Comprehensive Set
      of International Accounting Standards

    A. Overview
    B. Concerns Regarding International Differences in Accounting Principles
    C. Structure of the Core Standards Project
      1. IOSCO
      2. IASC
      3. Relationship of IOSCO and the IASC
    D. Core Standards Project
      1. Background
      2. Development of the Core Standards Agreement
      3. Overview of the Work Program
      4. Acceleration of the Work Program
III. Efforts To Support the Core Standards Project
    A. Commission Efforts Through IOSCO
    B. Direct Commission Efforts
    C. FASB Efforts
IV. Progress on the Core Standards Project
    A. Scope
    B. Timing
V. Expected Process for Evaluation of the Completed Core Standards
    A. IOSCO
    B. Commission
      1. Process
      2. Rulemaking
      3. Benchmarks for Assessment
        a. April 1996 Policy Statement
        b. Effect on Efficiency of Capital Formation
        c. Significance of Differences from Current U.S. Standards
VI. Issues Requiring Assessment
    A. Transition Dates
    B. Reservation Items
      1. Essential Issues
      2. Suspense Issues
    C. Specialized Industry Accounting
    D. Supplemental Commission Disclosure Requirements
VII. Complementary Efforts
    A. Overview
    B. Current Commission Reconciliation Requirements for Foreign Private Registrants
          and Accommodations of International and Home Country
          Accounting Standards
    C. Accommodations Provided to Foreign Private Registrants
VIII. Conclusion

IX. Appendices


Executive Summary and Introduction

In the United States, regulation of capital markets is based on a system that requires companies wishing to list or trade their securities to comply with initial and continuing disclosure requirements. The goals of this disclosure system are to promote informed decisions by the investing public through full and fair disclosure, which includes preventing misleading or incomplete financial reporting. Establishing and maintaining high quality accounting standards are critical to the U.S. approach to market regulation.

The Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940 are the basic laws that govern securities market regulation in the United States. Those laws, and related rules and regulations subsequently adopted by the Securities and Exchange Commission (the Commission), establish the initial and continuing disclosures that companies must make if their securities are sold to or traded by the U.S. investing public. Domestic registrants must provide financial statements prepared in accordance with U.S. generally accepted accounting principles. Foreign private issuers may provide financial statements prepared according to a comprehensive body of accounting principles other than those generally accepted in the United States if a reconciliation to U.S. generally accepted accounting principles also is provided.

Requirements for listing or offering of securities vary from country to country. Issuers wishing to access capital markets in more than one country may have to comply with requirements that differ in many respects, including accounting principles to be used in the preparation of financial statements. These differing requirements are believed to increase compliance costs for registrants and create inefficiencies in attempts to access multiple capital markets. As a result, securities regulators around the world have been working on several projects to reduce differences in reporting and disclosure requirements.

The International Organization of Securities Commissions (IOSCO), of which the Commission is a member, has been working with the International Accounting Standards Committee (IASC) for the past several years on a project to develop a core set of accounting standards that might become a framework for financial reporting in cross-border securities offerings. Because the Commission will need to assess the acceptability of the core standards for use in U.S. markets, the Commission staff has been active in following the IASC project.

In 1994, IOSCO reviewed the existing IASC standards and identified standards that need to be improved before acceptance can be considered, including areas in which there are "essential issues" – issues deemed critical to the success of the project by some countries. In July 1995, IOSCO and the IASC agreed on a core standards work plan, and in April 1996, the IASC announced an intention to try to complete that plan by March 1998.

In April 1996, the Commission released a statement in support of the efforts of IOSCO and the IASC. That statement indicated that, if the IASC successfully completes the agreed-upon work plan, the Commission will consider accepting the core standards in securities offerings by cross-border issuers in the United States, if those standards satisfy the criteria for acceptance described by the Commission in that statement.

The Commission believes that the work of IOSCO, both independently and with the IASC on its core standards project, is an important effort to improve capital market reporting and, therefore, capital market efficiency around the world. Because of the importance of this issue, the Commission has devoted significant resources to this project and expects to continue to do so at an increasing level in the next 18-24 months.

At this point, it is not clear what the Commission's final decision regarding the core standards project will be. Nevertheless, the IASC's efforts to date already have contributed significantly to raising the level of accounting standards worldwide and reducing the number of differences between international standards and accounting principles used in the United States. These and other efforts at the international level are encouraging development of accounting principles that have the needs of investors and capital markets as their primary focus.

As the Commission considers proposing changes to its current reporting requirements for foreign private registrants, it will have to evaluate the impact of such changes on capital formation, including the expected impact on the cost of capital for domestic registrants, and on investor protection. The Commission has established the basic criteria that will be used to assess the acceptability of the IASC core standards when those standards are completed. The Commission will consider whether the standards constitute a comprehensive body of accounting; whether they are of high quality and result in comparability and transparency and provide for full disclosure; and whether they can and will be rigorously interpreted and applied.

In October 1996, the Congress of the United States passed the National Securities Markets Improvement Act of 1996. Section 509 of that Act required the Commission to report to the Congress on progress in the development of international accounting standards and the outlook for successful completion of a set of international standards that would be acceptable to the Commission for offerings and listings by foreign corporations in United States markets. This report is submitted by the Commission in response to this requirement.


I. The Role of Accounting Standards
in Capital Market Regulation

The Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940 are the basic laws that govern securities market regulation in the United States. Those laws, and related rules and regulations subsequently adopted by the Securities and Exchange Commission (the Commission), establish the initial and continuing disclosures that companies must make if their securities are sold to or traded by the U.S. investing public. 1 The goals of this disclosure system are to promote informed decisions by the investing public through full and fair disclosure, which includes preventing misleading or incomplete financial reporting. Financial statements are a cornerstone of this approach, and the quality and usefulness of those financial statements are directly dependent on the accounting principles used to prepare them.

U.S. generally accepted accounting principles are not established directly by the Commission. While U.S. securities laws grant to the Commission that authority,2 the Commission historically has looked to the private sector for leadership in establishing and improving accounting principles to be used by public companies.3

As a result, the Commission normally does not publish or prescribe specific accounting principles that must be used in the preparation of financial statements. Instead, the Commission has formally endorsed the Financial Accounting Standards Board (FASB) as the private sector body whose standards are considered to have substantial authoritative support. This partnership with the private sector facilitates input into the accounting standard-setting process from all stakeholders in U.S. capital markets, including financial statements preparers, auditors and users, as well as regulators. The Commission's willingness to look to the private sector, however, has been with the understanding that the Commission may exercise its statutory authority and supplement, override or otherwise amend private sector accounting standards.

From time to time the Commission or its staff publish rules or interpretive material that prescribe additional financial reporting requirements that must be satisfied by public companies. For example, Regulation S-X establishes requirements for the presentation of comparative financial statements and minimum line items and footnote disclosure to be provided in financial statements required to be filed with the Commission. The Commission staff, through its process of review and comment on financial statements filed with the Commission, is active in shaping how U.S. accounting standards are interpreted and applied. Still, the overall role that the Commission has chosen has been one of oversight of the private sector process.

Different accounting traditions have developed around the world in response to the different needs of the users for whom financial information is being prepared. In some countries, accounting principles have been shaped primarily by the needs of private creditors; in other countries, the needs of tax authorities or central planners seem to be the predominant influence. In the United States, accounting principles have been developed to meet the needs of capital markets. As a result, they provide a framework for reporting that delivers transparent, comparable financial reporting. The market regulation approach adopted in the United States is dependent upon providing high quality information to capital market participants to facilitate informed decisions by investors. Establishing and maintaining high quality accounting standards are critical to the U.S. approach to market regulation.


II. Efforts to Develop a High-Quality, Comprehensive Set
of International Accounting Standards

A. Overview

Issuers wishing to access capital markets in different jurisdictions must comply with requirements that differ in many respects, including accounting principles to be used in the preparation of financial statements. These differing requirements are believed to increase compliance costs for registrants and create inefficiencies in attempts to access multiple capital markets.

In 1990, the International Organization of Securities Commissions (IOSCO) endorsed development or recognition of adequate internationally acceptable accounting standards that would facilitate evolution of a single disclosure document for cross-border offerings and listings.

In 1994 IOSCO completed a review of the accounting principles issued by the International Accounting Standards Committee (IASC). As a result of this review, IOSCO identified standards that needed to be improved before IOSCO would consider endorsing IASC standards as a basis for preparation of financial statements to be used in cross-border offerings and listings. Other reservations, referred to as "suspense" issues, also were identified. These suspense issues, which include specialized industry accounting practices, would not require resolution before endorsement could be considered, but individual jurisdictions might specify treatments that would be required if those issues were not addressed satisfactorily.

In 1995, IOSCO agreed that a work program prepared by the IASC would, upon successful completion, address all the items identified by IOSCO as "essential issues" and should result in international standards comprising a comprehensive core set of standards. This work program is referred to as the "core standards" work plan. In April of 1996 the IASC announced an intention to try to complete that plan by March 1998.

While IOSCO has worked with the IASC to agree on the scope of the work to be undertaken in order for IOSCO to consider endorsement of IASC standards for cross-border securities transactions, the 1995 agreement did not give IOSCO the right or responsibility to dictate the outcome of any of the deliberations undertaken. Although IOSCO is committed only to assessment of the completed standards, it nevertheless has increased its participation in the IASC standard-setting process by joining the IASC's Board and Steering Committees as a non-voting observer. Through this participation, as well as comment letters submitted by both an IOSCO task force (Working Party No. 1) and the individual IOSCO member jurisdictions, IOSCO seeks to provide input on a timely basis to the IASC's deliberations.

When the core standards work program is completed, Working Party No. 1 will assess the acceptability of the resulting standards and make a recommendation regarding endorsement to the Technical Committee of IOSCO. 4

B. Concerns Regarding International Differences in Accounting Principles

Issuers wishing to access capital markets in different jurisdictions must comply with requirements that differ in many respects, including accounting principles to be used in the preparation of financial statements. These differing requirements are believed to increase compliance costs for registrants and create inefficiencies in attempts to access multiple capital markets.

Clearly, preparing financial information on more than one basis of accounting creates additional costs for preparers. Some of these costs may be minimized by selecting accounting policies (applications of accounting principles) that are accepted practice in more than one jurisdiction.

Another concern expressed about international differences in accounting principles arises from investor reaction to an enterprise reporting significantly different operating results or financial position for the same period as a result of applying two different sets of accounting standards. Significant differences may call into question the credibility of the entity's financial reporting, particularly if the differences highlight adjustments that mask poor performance, lack of profitability, or deteriorating asset quality.

Currently, securities regulators in a number of countries, including the United States, accept financial statements prepared using accounting principles other than the standards required to be used by domestic registrants. In the United States, foreign private issuers are required to supplement their home country financial statements with information that reconciles net income, shareholders' equity and footnote disclosures to information prepared using U.S. generally accepted accounting principles ("U.S. GAAP"). In contrast, other jurisdictions may accept a basis of accounting other than their domestic accounting principles without supplement. For example, members of the European Union accept financial statements prepared in accordance with other member states' home country accounting principles, without any supplemental reconciliation. Many countries also already accept financial statements prepared in accordance with either the current accounting standards issued by the International Accounting Standards Committee (IASC) or U.S. GAAP, also without supplemental reconciliations.

The Commission, like securities regulators in some other countries, including Japan and Canada, has not adopted a mutual recognition approach or eliminated disclosure requirements that assure the availability of information that is comparable to that required from domestic registrants. In the United States, concerns with an approach such as mutual recognition include (a) investors not receiving the information necessary to make informed investment decisions; and (b) U.S. domestic registrants being placed at a competitive disadvantage where the cross-border registrant's home country standards permit less transparent or detailed disclosure.

Despite these concerns, the Commission recognizes that different listing and reporting requirements may create inefficiencies in cross-border capital flows, and has joined with other securities regulators around the world to work to reduce these differences, including differences in accounting principles used to prepare financial statements. These efforts seek not only to increase the efficiency of cross-border capital flows, but also to improve the quality and reliability of information provided to capital market participants.

C. Structure of the Core Standards Project

1. IOSCO

The International Organization of Securities Commissions (IOSCO) is a non-profit association of securities regulatory organizations. It has approximately 135 ordinary, associate and affiliate members, including twelve based in the United States. U.S.-based members include the Securities and Exchange Commission (ordinary member), the Commodities Futures Trading Commission and the North American Securities Administrators Association, Inc. (associate members), and NASD Regulation and the New York Stock Exchange (affiliate members).

Two key IOSCO committees following this project are the:

  • Technical Committee, which is composed of sixteen regulatory agencies that regulate some of the world's largest, more developed and internationalized markets. Its objective is to review major regulatory issues related to international securities and futures transactions and to coordinate practical responses to these concerns. Both the Commission and the CFTC serve on this committee. The Commission is represented by a member of the Commission. This committee oversees IOSCO's efforts to encourage development of internationally accepted accounting standards.

  • Working Party No. 1 on Multinational Disclosure and Accounting is one of several working groups that reports to the Technical Committee. It has members from sixteen jurisdictions. 5

The Working Party is chaired by a Commission staff member. Commission staff members from the Division of Corporation Finance, the Office of the Chief Accountant, and the Office of International Affairs are members of the Working Party.

2. IASC

The IASC is an independent private sector body formed in 1973. Since 1983, its membership has included all the professional accountancy bodies that are members of the International Federation of Accountants (IFAC). As of October 1, 1997, IFAC had 129 members from 89 countries. The IASC's objective is to achieve uniformity in the accounting principles used by businesses and other organizations for financial reporting around the world.

The business of the IASC is conducted by a Board with sixteen voting delegations and five non-voting observer delegations with the privilege of the floor. 6 Each delegation includes up to three members who share a single vote. Delegation members normally are drawn from the accountancy profession and preparer community; representatives of national standard setters may be included in a delegation, usually as the technical advisor. The Board currently meets approximately four times a year for about a week to receive reports from its staff and steering committees and to discuss and approve exposure drafts and final standards for publication.

Board delegates serve on a part-time, volunteer basis. The IASC has a small full-time staff based in London. This staff provides a manager for most IASC projects; project staffing, in the form of a Steering Committee, is provided by volunteers who represent a mix of Board member and non-Board member IFAC organizations. IOSCO and the European Commission are non-voting observers for most Steering Committees.

The IASC recently established a Standing Interpretations Committee (SIC). The SIC is intended to provide authoritative interpretations of IASC standards. The SIC will meet quarterly.

The IASC's original purpose included establishing standards for use by developing countries that did not have an established standard-setting body. The early IASC standards were compilations of practices in major capital markets, and often provided two or more alternative treatments for a certain type of transaction. More recently the IASC has worked to develop standards that are consistent with its conceptual framework, and to eliminate allowed alternative treatments.

The IASC structure and standard-setting process differs significantly from that of the U.S. Financial Accounting Standards Board, which is recognized by the Commission as the body whose standards are considered to have substantial authoritative support. While both organizations are private sector bodies, the FASB has seven full time paid board members with no other employment affiliations. As noted above, the IASC board members serve on a part time basis; many are accountants who work as auditors or preparers with other full time responsibilities. All IASC meetings, including board meetings, are closed sessions (not open to the press or the public); the FASB's meetings are open to the public. Also, because the IASC is an international body, neither the Commission nor any other regulatory body has any oversight authority.

The IASC has stated its desire to examine and alter its structure and operating procedures to increase its technical resources and improve the transparency of its standard setting process. It has formed a Strategy Working Party to recommend changes that would be implemented after the core standards work program is completed. 7 The Strategy Committee is expected to publish a consultative document shortly.

3. Relationship of IOSCO and the IASC

While IOSCO is a committee of securities regulatory agencies, the IASC is an independent, private sector organization. The 1995 core standards agreement between IOSCO and the IASC did not alter the structure, composition or operating procedures of the IASC, and IOSCO was not given any type of veto. IOSCO, through its Working Party No. 1, monitors the standard-setting process both as a non-voting observer at IASC Steering Committee and Board meetings, and as one of the many groups commenting on specific IASC proposals. Members of IOSCO and its Working Party also comment individually on proposed standards.

Neither the core standards agreement nor IOSCO's participation in the IASC's standard-setting process dictate the outcome of the IASC's technical decisions. While the IASC is interested in obtaining input from IOSCO and its members during its deliberations, that input is not determinative in any of the IASC's decisions. The IASC continues to have other constituents that participate in its standard setting process and utilize its final standards. Their views, as well as the views expressed by IOSCO, are considered by the IASC Board in its debate and technical decisions.

When the IASC's core standards work program is completed, IOSCO's Working Party No. 1 will assess the acceptability of the resulting standards and make a recommendation to IOSCO's Technical Committee regarding endorsement. It is likely that issues raised previously by the Working Party and its members during the IASC comment process will be factors in that assessment.

D. Core Standards Project

1. Background

In 1989 Working Party No. 1 prepared a report for the Technical Committee, "International Equity Offers." This report noted that development of a single disclosure document for use in cross border offerings would be greatly facilitated by the development of adequate internationally accepted accounting standards. Rather that attempting to develop those standards itself, the Working Party focused on efforts by the IASC.

This decision to look to IASC, an existing, private-sector standard setter, recognized several factors.

  • If the standards were to function effectively, they would need to be an integrated set of standards based on a single framework rather than a blend of different approaches from different jurisdictions. IOSCO recognized that this project would demand significant technical expertise and resources. An organization whose mission is the development of international accounting standards, and that is structured to draw on experts from a number of countries, appeared better suited to take the primary responsibility for drafting proposals, soliciting and evaluating comments, and debating standards.

  • A private sector body such as the IASC utilizes private and public sector expertise and provides for broad input into the standard-setting process from many countries, involving preparers, auditors and users of financial statements as well as regulators. The approach of looking to efforts of a private sector body is consistent with that taken in some IOSCO jurisdictions. The approach in the United States approach combines private sector efforts with oversight by a regulatory body.

  • The scope of this project also was acknowledged to be such that greater full time resources would be necessary than could be provided by IOSCO members.

However, IOSCO and, ultimately, its individual members, will decide on the acceptability of the completed core standards. 8

2. Development of the Core Standards Agreement

In 1993, IOSCO wrote to the IASC detailing the necessary components of a core set of standards that would comprise a comprehensive body of accounting principles for enterprises undertaking cross-border securities offerings. That group of accounting standards is referred to as the "core standards."

In 1994, the IASC completed a project it had undertaken in 1993 to improve the comparability and usefulness of financial statements prepared in accordance with its standards. Prior to this project, a number of IASC standards codified existing practice in multiple jurisdictions, permitting several alternative (and at times inconsistent) treatments for a single type of transaction. As a result of this project, many alternatives were eliminated, although, in a few areas, the IASC standard retained conflicting approaches, with one designated as a "benchmark" treatment and the other as an "allowed alternative."

IOSCO reviewed the revised IASC standards and identified standards that would have to be improved before acceptance could be considered. In 1994, it wrote two letters to the IASC to communicate the results of this review. These two letters, 9 addressed to the then-chairman of the IASC, Eiichi Shiratori (the "Shiratori letters"), identified for the IASC areas that its standards would have to address, and standards that would have to be improved, before the Working Party could consider recommending IASC standards for use in cross-border listings and offerings.

The Shiratori letters divided the issues into three categories:

  • Essential issues – those issues that require a solution prior to consideration of IOSCO endorsement.

  • Suspense issues – those issues, which include specialized industry accounting practices, that would not require resolution before endorsement could be considered, although individual jurisdictions might specify treatments that would be required if those issues were not addressed satisfactorily.

  • other issues and long-term projects – those areas where improvements could be made, but that did not need to be addressed prior to consideration of IOSCO endorsement.

The Shiratori letters and resulting core standards work program exclude specialized industry standards. These standards are industry-specific tailoring of general standards to address specialized industry business practices and issues (e.g., specialized accounting and reporting requirements for the banking, insurance, and motion picture industries). Specialized industry accounting issues are expected to be treated as suspense issues.

Based on the issues identified in these letters, the IASC proposed a work program designed to address all the essential issues. In July 1995, IOSCO and the IASC agreed that the IASC's proposed work program would, if completed successfully, comprise a comprehensive core set of standards. IOSCO stated that, if the resulting core standards are acceptable to the Technical Committee of IOSCO, that group would recommend endorsement of IASC standards for cross-border capital raising and listing purposes. 10 In April 1996, the IASC announced an intention to try to complete that plan by March 1998. 11 Completion of the work plan is expected to result in approximately twelve new or substantially revised standards.

3. Overview of the Work Program

The revised work program published by the IASC in 1996 identified twelve projects to issue new or substantially revised standards. Since April 1996, the IASC has published four final standards and eight are under consideration. Following is a status report on each of the twelve projects undertaken in the core standards work program.

  • Areas where revisions to existing standards were planned:

      1.   Income Taxes
          – A final standard was published dated October of 1996.
      2.   Intangible Assets, Goodwill, and Research and Development Costs
          – Two exposure drafts were published in late August 1997.
          – Final standards are scheduled to be approved in April of 1998.
      3.   Segments
          – A final standard was published dated August 1997.
      4.   Presentation of Financial Statements
          – A final standard was published dated August 1997.
      5.   Employee Benefit Costs
          – An exposure draft was published dated October 1996.
          – A final standard is scheduled to be approved in October 1997.
      6.   Leases
          – An exposure draft was published in late April 1997.
          – A final standard is scheduled to be approved in October 1997.

  • Areas where new standards were to be developed:

      7.   Impairments of Assets: although technically a revision of limited guidance in existing standards on impairments, this is the IASC's first separate standard on this topic.
          – An exposure draft was published dated May 1997.
          – A final standard is scheduled to be approved in January 1998.
      8.   Financial Instruments, including revisions to the standard on Investments.
          – The IASC has published two exposure drafts regarding accounting for financial instruments: E40 (September 1991) and E48 (January 1994). In view of the responses to these two proposals, the Board decided to finalize a disclosure standard, which was issued as IAS 32, Financial Instruments, Disclosure and Presentation, in March of 1995, and to pursue a separate project on accounting for financial instruments.
          – In March 1997, the IASC Financial Instruments Steering Committee published a comprehensive Discussion Paper, Accounting for Financial Assets and Financial Liabilities, and conducted consultative meetings about this paper and its proposals.
          – The IASC was scheduled to approve an exposure draft based on the discussion paper's proposals at its October 1997 meeting. In September 1997, the IASC staff announced that instead it will ask the IASC Board to approve, as an interim measure, adoption of U.S. accounting principles for financial instruments. The Board will discuss this proposal at its October 1997 meeting.
      9.   Earnings Per Share
          – A final standard was published dated February 1997.
      10.   Interim Reporting
          – An exposure draft was published dated August 1997.
          – A final standard is scheduled to be approved in January 1998.
      11.   Discontinuing Operations
          – An exposure draft was published dated August 1997.
          – A final standard is scheduled to be approved in April 1998.
      12.   Provisions and Contingencies
          – An exposure draft was published dated August 1997.
          – A final standard is scheduled to be approved in April 1998.

4. Acceleration of the Work Program

The core standards work program, when agreed upon in July 1995, was scheduled for completion in June 1999. Many who supported the effort to develop a core set of accounting standards for use in cross-border offerings urged the IASC to accelerate its efforts. In March 1996, the IASC announced that its Board had agreed to set a new target date of March 1998 for completion, fifteen months earlier than originally planned. To accommodate this accelerated work schedule, the IASC lengthened and increased the number and length of Board meetings; restricted the number of published documents for each project to an exposure draft only (for revision projects) and a preliminary discussion document and an exposure draft (for major projects);12 and shortened the comment period on all documents to three months.

The Commission issued a statement in April 1996, expressing support for IASC efforts to complete its work program on a timely basis. 13 This statement also identified criteria that the Commission expected to use to assess the acceptability of the resulting core standards. These criteria are described in Section V.B.3.a.


III. Efforts To Support the Core Standards Project

A. Commission Efforts Through IOSCO

IOSCO, through its Working Party No. 1, is a non-voting observer at IASC Steering Committee and Board meetings. The Working Party attempts to reply to each document the IASC publishes for comment, and to alert the IASC on a timely basis to concerns of the Working Party or its members about issues under discussion.

The IOSCO Working Party No. 1 meets quarterly, generally shortly before each IASC Board meeting. At its meetings the Working Party:

  • Receives reports from individual members that have attended IASC steering committee meetings;

  • Receives reports from those members who attend IASC Board and SIC meetings as observers;

  • Attempts to identify those issues scheduled for discussion at the upcoming IASC Board meeting that are of concern to the Working Party or individual members;

  • Discusses IASC discussion papers and proposed standards published for comment and attempt to identify issues where the Working Party or a majority of its members support or object to a proposed approach. The purpose is to agree upon comments to be conveyed to the IASC in a Working Party comment letter. Members of the Working Party also may comment individually on proposed standards.

The Working Party meets annually with the IASC Secretary-General to discuss progress and developments.

The Working Party is chaired by a Commission staff member, and Commission staff members prepare a majority of the briefing papers on agenda items for discussion at Working Party meetings. The Commission also provides staff as the observer for three IASC steering committees14and as part of the IOSCO observer delegation at IASC Board meetings.15 Since the accelerated work program was announced in 1996, Commission staff members have attended five IASC Board meetings, 16 approximately ten IASC steering committee meetings, and five IOSCO Working Party meetings. In the next year, Commission staff members are expecting to attend four IASC Board meetings, three or four IASC steering committee meetings, and four IOSCO Working Party meetings. Commission staff will also be participating, on a rotating basis, as IOSCO observers at the IASC SIC meetings.

B. Direct Commission Efforts

In its April 1996 statement, the Commission noted that it is committed to providing the necessary input to achieve the goal of establishing a comprehensive set of international accounting standards. Therefore, although the Commission can not assess the core standards until those standards are completed, the Commission staff provides detailed technical comments on proposed standards as those standards are published and debated, rather than waiting until the entire set of core standards is completed.

As a result, the Commission staff has issued comment letters, in addition to contributing to IOSCO Working Party No. 1 comment letters, on substantially all of the IASC's published documents. Comment letters prepared by the Commission staff are more detailed than IOSCO comment letters. The staff's letters attempt to assess whether the proposed standard responds to each of its essential and suspense issue, and notes whether potential suspense issues remain, in addition to providing other, more technical comments.

These activities have required a significant commitment of staff resources. In the Office of the Chief Accountant, three accountants focus primarily on international accounting issues. This office also has just hired a fourth accountant to work primarily on international accounting, reporting and auditing issues. Staff members of the Office of the Chief Accountant spent over 4,000 hours working in this area in the fiscal year ended September 30, 1997. Staff members from the Division of Corporation Finance and the Office of International Affairs are also active participants in Working Party No. 1.

C. FASB Efforts

The U.S. Financial Accounting Standards Board (FASB) is the private sector standard setting organization recognized by the Commission to promulgate accounting principles for use by public companies. The FASB has been an active participant in the IASC.

An FASB Board member is a non-voting observer member of the IASC Board and participates in the Board discussions and debates. FASB Board members have participated in IASC steering committees. The FASB staff comments extensively on documents published by the IASC for comment, and those comment letters are widely distributed by the FASB.

The FASB provides staff assistance and research support for IASC projects, both directly and through joint projects. For example, the IASC's project to develop a standard on Earnings Per Share was a joint project with the FASB. The IASC's Segment Reporting project was coordinated with a joint project between the FASB and the Canadian Institute of Chartered Accountants. Since the FASB has published standards in many areas currently under discussion by the IASC, the IASC staff often utilizes research performed by the FASB.

The FASB also has prepared a detailed comparison of U.S. and IASC accounting principles. This document, originally published in November 1996, is updated by the FASB staff each time the FASB or IASC completes consideration of a standard. 17

The FASB and IASC are both members of the G-4+1. The G-4+1 is a group of standard setters that share similar conceptual frameworks. This group meets approximately four times a year to discuss current standard setting projects and coordinate research efforts. Members of the G-4+1 now include the standard setting bodies of the United States, United Kingdom, Canada, Australia and New Zealand, as well as the IASC.


IV. Progress on the Core Standards Project

A. Scope

As discussed above in section II.D.2, the IASC's core standards work program is designed to address all of the issues identified as essential issues in IOSCO's 1994 Shiratori letters. Those letters also identified a larger number of suspense issues, only some of which are being addressed by the core standards work program. In March 1997, IOSCO Working Party No. 1 completed a review of the essential and suspense issues identified in the 1994 Shiratori letters. As a result of this review:

  • two issues were dropped; and

  • a large number of suspense issues were identified that potentially could be addressed and resolved through interpretation by the SIC.

It appears that the current work program will address all of the original essential issues. However, virtually all of the projects undertaken represent fundamental reconsiderations of the accounting in each area; as a result, some of the modifications proposed by the IASC may result in additional essential or suspense items. Both the Working Party and the Commission staff are attempting to identify additional or remaining essential and suspense issues on a timely basis so as to provide input during the IASC's deliberation of standards.

B. Timing

The IASC believes it is on target for completion of the core standards work program in 1998, although completion by March 1998 appears unlikely. As of September 1997 four of the twelve scheduled projects have been completed. The IASC Board is scheduled to discuss two more proposed final standards at its October 1997 meeting. Three projects – Financial Instruments, Intangibles and Impairment – are behind the schedule established in April 1996. Six projects now are scheduled for finalization in 1998, including some of the most complex and controversial. It will be important for the IASC to place the quality of the resulting standards ahead of rigid adherence to its timetable.

The IASC is exploring an alternative that it hopes would accelerate its Financial Instrument project. In September 1997, the IASC staff announced that it will recommend to its Board, at the Board's October meeting, that U.S. accounting principles for financial assets and liabilities be adopted as an interim measure, pending completion of a longer-term project.


V. Expected Process for Evaluation of the Completed
Core Standards

A. IOSCO

Once the IASC completes the core standards work program, IOSCO will assess the acceptability of the resulting standards. Normally, the IASC requires about two months after approval by its Board of a draft standard to publish a final standard, so the final compilation of standards probably will not be available until approximately two months after the Board approves the last standards. IOSCO experience has been that final standards often differ in significant ways from both exposure drafts and draft final standards. As a result, IOSCO's assessment can not occur before the standards are finalized.

After the final standards are published, IOSCO Working Party No. 1 will undertake its assessment of the resulting standards and make a recommendation to IOSCO's Technical Committee. The Technical Committee will prepare a resolution regarding endorsement for approval by the IOSCO membership at IOSCO's subsequent annual conference.

IOSCO is an organization that operates on the basis of consensus, rather than majority votes. Its resolutions are non-binding on its member organizations. Accordingly, were IOSCO to endorse the IASC's final standards, each IOSCO member would have to determine whether and how to consider adoption of these standards at a domestic level.

B. Commission

1. Process

Commission staff will participate in IOSCO's assessment of the completed core standards. In addition, the Commission must make an independent assessment of the acceptability of the completed core standards for use in U.S. markets. The timing of the Commission's assessment could be concurrent with work at the IOSCO level.

The substantial work performed by the Commission staff during the core standards project will provide the basis for its preliminary assessment of the completed core standards. As noted above in section III.B, the Commission staff comments on virtually all proposed standards published for comment by the IASC, although not all the points raised are adopted by the IASC. Generally, each of the Commission staff comment letters includes, as an appendix, a list of potential reservations (essential or suspense issues).

2. Rulemaking

If, as a result of its preliminary assessment of the completed core standards, the Commission concludes that changes to its current filing requirements for foreign private issuers are appropriate, a rule proposal will be issued for public comment. This may include modifications of the financial statement requirements for forms utilized by foreign private issuers, such as Form F-1 and 20-F.18 A final decision regarding modifications to the Commission's current reporting requirements for foreign private registrants would be determined only after consideration of the responses to a rule proposal in accordance with the Administrative Procedures Act.

3. Benchmarks for Assessment

a. April 1996 Policy Statement

In April 1996, the Commission issued a press release expressing support for the IASC's objective of developing, as expeditiously as possible, accounting standards that would provide a framework for financial reporting in cross-border securities offerings. It also noted three key elements of the project and the Commission's acceptance of its results:

  1. The standards should include a core set of accounting pronouncements that constitute a comprehensive, generally accepted basis of accounting.

  2. The standards must be of high quality – they must result in comparability and transparency, and they must provide for full disclosure. Investors must be able to meaningfully analyze performance across time periods and among companies.

  3. The standards must be rigorously interpreted and applied. If accounting standards are to satisfy the objective of having similar transactions and events accounted for in similar ways – whenever and wherever they are encountered – auditors and regulators around the world must insist on rigorous interpretation and application of those standards. Otherwise, the comparability and transparency that are the objectives of common standards will be eroded.

b. Effect on Efficiency of Capital Formation

As the IASC has noted, a principal objective of the core standards project is gaining access to major capital markets – including the United States – where statements prepared in accordance with international accounting standards may not be accepted currently from cross-border issuers.

However, none of the IOSCO member jurisdictions has indicated that it is considering replacing its home country requirements for domestic issuers with IASC standards. In countries where standard setters or regulators have committed to harmonizing existing or future standards with IASC standards, these organizations have indicated that they expect, at a minimum, to continue to tailor or supplement IASC standards for national requirements.19

In many non-U.S. countries, foreign companies engaged in cross-border offerings are allowed to use either their home country or IASC standards without having to reconcile or restate those financial statements to a local accounting standards basis. In many cases, requiring use of the IASC standards by cross-border issuers will impose more demanding standards on cross-border issuers than domestic accounting standards impose on domestic registrants, especially once those standards are upgraded by the core standards project. Therefore many regulators and others from non-U.S. countries may view the core standards project as an opportunity to improve the quality of financial reporting in their capital markets, at least in cross-border offerings. It seems likely that domestic registrants in these countries would resist efforts to raise domestic standards by imposing more demanding IASC standards on them as well as on cross-border registrants. Additionally, European Union member states do not plan to require compliance with IASC standards on cross-border listings and offerings from its member states.

The United States has more rigorous accounting standards than most other countries. These standards are an important facet of the U.S. system of market regulation based on full and fair disclosure, and the Commission believes that high quality U.S. standards, and the investor confidence they engender, are an essential ingredient of our liquid, stable capital markets.

If IASC standards are not judged, either in principle or in application, to be of comparable quality to U.S. standards, adoption of those standards for use by foreign registrants without reconciliation or supplemental disclosure could have the following results:

  • investors may begin to question the transparency of financial reporting in U.S. markets, with a resulting reduction in the stability of the markets or efficiency of pricing of capital for both domestic and cross-border issuers; and

  • domestic registrants would be put at a competitive disadvantage because application of U.S. accounting and reporting requirements would impose higher disclosure requirements on them than on foreign enterprises competing for capital in the same markets.

Therefore, the Commission will have to consider carefully the extent to which current requirements for presentation of U.S. GAAP information by foreign private registrants should be modified. It appears that, as the process of developing international standards continues, differences between U.S. and other standards are decreasing. Further, many preparers outside the United States are choosing to apply their home country (or IASC) standards in a way that minimizes differences from U.S. GAAP and therefore limits the amount and cost of reconciling information.

c. Significance of Differences from Current U.S. Standards

One important, though not determinative, issue will be differences between international accounting standards and U.S. accounting standards. In 1996, the FASB completed the first stage of an important project to compare existing IASC standards with comparable U.S. standards. The FASB updates this comparison whenever it or the IASC completes a project. The staff expects that this updated comparison will be an important tool for its assessment of the completed core set of standards.


VI. Issues Requiring Assessment

A. Transition Dates

Currently, transition dates are an IOSCO suspense issue. The standards and revised standards published as part of the core standards project include prospective adoption dates; standards finalized to date are not required to be applied until fiscal years beginning on or after January 1, 1998, at the earliest. Some members of Working Party No. 1 believe that, even if the standards produced as a result of the core standards project are judged acceptable for use in cross-border offerings and filings, historical financial statements prepared in accordance with current IASC standards would not be acceptable without reconciliation since the historical financial statements will not reflect the improvements in accounting and reporting achieved by the core standards program.

B. Reservation Items

"Reservations" refers to both essential and suspense issues.

1. Essential Issues

Essential issues were defined in the Shiratori letters as items that must be addressed before endorsement would be considered. The core standards work program is designed to address all essential issues. However, it is not clear that all the essential issues will be resolved in a manner that is acceptable to the Working Party. As noted previously, neither IOSCO nor any individual regulatory group has oversight authority over the IASC. Therefore, while IOSCO and its members comment on IASC proposals, those comments are not accepted automatically and may result in new or remaining reservations.

For example, one essential issue noted is the current IASC standard IAS 9, Research and Development Costs. The Shiratori letters noted that IOSCO Working Party No. 1 was unable to conclude on the acceptability of the current requirements of IAS 9 and noted that resolution of this issue was an essential item for some Working Party members. IAS 9 requires capitalization of development costs as an asset when specified criteria are met. Some IOSCO member countries noted that they would consider acceptance of this standard only if it was supplemented by disclosures providing information equivalent to a treatment of expense of all development costs. Other IOSCO member countries indicated that they may require or allow development costs to be expensed without reconciliation. One member country believes that research and development costs should not be accounted for separately and it should be acceptable to recognize such costs as either assets or expenses.

The IASC has combined its reconsideration of IAS 9 with its project on accounting for goodwill and intangibles. The approach proposed in the IASC's Exposure Draft E60, Intangible Assets, would extend the current approach for development costs to all internally generated intangible assets. Therefore, the IASC's proposal would have the effect of extending IOSCO's limited essential item on IAS 9 to the IASC's new standard on intangible assets. The IASC's proposal also impacts IAS 22, Business Combinations, portions of which currently are accepted without reconciliation in filings with the Commission. 20

2. Suspense Issues

The Shiratori letters defined suspense issues as those issues, which include specialized industry accounting practices, that would not require resolution before endorsement could be considered, although individual jurisdictions might specify treatments that would be required if those issues were not addressed satisfactorily. Rather than delaying consideration of an endorsement until these narrower issues are resolved, some IOSCO member countries might specify a host-country required treatment; others might accept the issuer's home country treatment, or provide no further guidance.

Although individual suspense items represent narrow issues, the number of suspense items left unaddressed may impact the assessment of the core standards. Because the IASC standards tend to be less detailed and provide less explicit guidance than U.S. GAAP, some amount of additional guidance is likely to be needed. The issue is whether the additional interpretive issues are so significant that the core standards are not operational – either they cannot be rigorously interpreted and applied, or require such a volume of additional interpretive guidance that endorsement would not represent a significant improvement in the efficiency of cross border capital flows.

C. Specialized Industry Accounting

The core standards work program and agreement does not address specialized industry accounting practices and issues. These are expected to be addressed as "suspense" issues. As indicated in the Shiratori letters, individual jurisdictions may specify interpretive approaches or supplemental disclosure for suspense issues.

D. Supplemental Commission Disclosure Requirements

Historically, the Commission has looked to the private sector for leadership in establishing and improving accounting principles to be used by public companies.21 As noted earlier, however, this willingness to look to the private sector has been with the understanding that the Commission may exercise its statutory authority and supplement, override, or otherwise amend private sector accounting standards.

For example, from time to time the Commission has adopted rules and regulations specifying the number and age of financial statements to be presented (see Article 3 of Regulation S-X); the minimum balance sheet and income statement line item requirements (see for example Article 5 of Regulation S-X); and minimum general footnote disclosure requirements (see Rule 4-08 of Regulation S-X). The Commission and Commission staff also have provided interpretive guidance in the form of Financial Reporting Releases and Staff Accounting Bulletins. These requirements are supplemental to the accounting and disclosure requirements established in private sector standard setting efforts such as FASB standards.

Also, the Commission staff, through its process of review and comment on financial statements filed with the Commission, is active in shaping how U.S. accounting standards are interpreted and applied.

Currently, these supplemental interpretive and disclosure requirements apply not only to domestic registrants in the preparation of their U.S. GAAP financial statements, but also to foreign private registrants. The Commission will have to consider whether such supplemental requirements should continue to apply regardless of the basis of accounting used to prepare the financial statements.


VII. Complementary Efforts

A. Overview

The Commission also continues to pursue vigorously its ongoing efforts to increase U.S. investor access to foreign investments. While the IASC core standards project is ongoing, the Commission has continued its extensive efforts to work with foreign enterprises considering U.S. listings. The Commission has implemented a number of regulatory accommodations and other informal initiatives in recent years to streamline the process of registration for foreign companies. The number of foreign private issuers registered and reporting with the Commission has increased from 657 at December 31, 1994 to 990 at September 15, 1997.

B. Current Commission Reconciliation Requirements for Foreign Private Registrants and Accommodations of International and Home Country Accounting Standards

The Commission's current financial statement requirements for foreign private issuers parallel those for U.S. domestic issuers except that foreign private issuers may prepare financial statements either in accordance with U.S. generally accepted accounting principles (U.S. GAAP) or home country accounting principles (including IASC standards) with a reconciliation in an audited footnote to U.S. GAAP. The principal requirements, including the exceptions from the general requirement to provide U.S. GAAP information, are summarized in the instructions to items 17 and 18 of Form 20-F.

The Commission has amended its requirements for financial statements of foreign private issuers to permit use of certain IASC standards without reconciliation to U.S. GAAP. These are:

    a. Use of International Accounting Standard (IAS) 7, Statement of Cash Flows (as amended in 1992);

    b. Acceptance of portions of IAS 22, Business Combinations (as amended in 1993), regarding identification of a business combination as a pooling or purchase and determination of the period for amortization of goodwill and negative goodwill recorded in purchase business combinations;

    c. Portions of IAS 21, The Effects of Changes in Foreign Exchange Rates, (as amended in 1993) regarding translation of amounts stated in a currency of a hyperinflationary economy into the issuer's reporting currency.

The Commission also does not require reconciliation of inflation adjustments if the financial statements of a foreign private issuer include a comprehensive measure of inflation. Inflation adjusted financial statements often are prepared by Latin American and Israeli companies.

Foreign private issuers that prepare financial statements on a basis of accounting other than U.S. GAAP using proportionate consolidation for investments in joint ventures may, in certain cases, omit differences from U.S. GAAP in classification or display if the investment would be accounted for using the equity method under U.S. GAAP.

C. Accommodations Provided to Foreign Private Registrants

Other accommodations available to foreign private registrants include:

  • Interim reporting on the basis of home country and stock exchange practices; quarterly reports are not mandated for foreign issuers;

  • Exemption from the proxy rules and Section 16 insider stock reports and short-swing profit recovery;

  • Executive compensation disclosure requirements that allow disclosure on an aggregate rather than an individual basis, if so permitted in the issuer's home country;

  • Offering document financial statements that are required to be updated principally on a semi-annual, rather than a quarterly, basis;

  • Transition reconciliation requirements that permit first-time foreign registrants with the Commission to reconcile the required financial statements and selected financial data, if these statements are prepared using home country accounting principles, for only the two most recently completed fiscal years and any interim periods;

  • Reconciliation of separate financial statements of equity investees and acquired businesses is required for financial statements prepared using home country accounting principles only if the significance of the investee exceeds 30%; 22

    and

  • Acceptance of the abbreviated form of U.S. accounting information reconciliation for all offerings of investment grade debt or preferred securities regardless of the registration form used.

In addition, to facilitate cross border offerings and stock market listings, the Commission staff has implemented procedures to review foreign issuers' disclosure documents in draft form on a non-public basis, if requested by the issuer.


VIII. Conclusion

The Commission has made a substantial commitment of resources to the IOSCO project and, through that organization, to the IASC's core standards project. It has done so because of the significance of the issues involved – the desire to increase the access of U.S. investors to foreign investments in the U.S. public markets and to improve the efficiency with which foreign companies access U.S. capital markets. The goal must be to increase U.S. and global capital market efficiency without unnecessary cost to U.S. markets and U.S. market participants – considering both the needs of investors and of those competing for capital at the lowest cost.

The Commission and its staff will continue to participate actively in these important international efforts. It will continue to comment on proposals so that the IASC has an opportunity to address those concerns on a timely basis as it debates its standards, rather than waiting until final standards are issued. It will continue to make every effort to encourage the development of standards that will yield the same level of transparency, comparability and disclosure as is provided by U.S. standards.

As noted earlier, one of the original concerns that prompted IOSCO to pursue accounting harmonization was the concern that investors would lose confidence in all financial reporting – and therefore in all capital markets – if the use of the accounting principles accepted in different capital markets could turn a reported profit into a reported loss, or vice versa. Accounting standards in different countries have developed in response to different primary users: in countries where banks and insurance companies are the primary sources of capital, the needs of lenders often predominate; in other countries, the demands of government tax collectors or central planners have shaped financial reporting. U.S. accounting standards are recognized as leaders in serving the needs of investors, and as other standard setters adopt this focus, both at an international and a national level, fundamental differences are eliminated or at least reduced.

The concentrated efforts in the period leading up to the development of the core standards work program and the further intensified work since then have had significant positive effects. These benefits include:

  • Identifying and addressing the needs of financial statement users in different jurisdictions around the world, especially the needs of users like financial analysts who are directly involved in the pricing of capital;

  • Exploring reasons for different approaches to financial reporting in different countries and reducing the number of internationally accepted alternatives; and

  • Encouraging development of consensus approaches between national and international standard setters not only to reduce the number of existing differences but also to forestall development of additional differences in future standard setting projects.

The Commission staff continues to pursue vigorously the twin goals of investor protection and efficient capital formation by active participation in the core standards project as well as supporting other related IOSCO efforts. The Commission and Commission staff will continue to promote global acceptance of financial reporting that meets the needs of investors and capital markets.

At this point, the resolution of the core standards project remains uncertain. There are many significant components of this project that the IASC has not yet completed, and the issues that remain open are among the most complex and controversial. Nevertheless, the IASC's efforts to date already have contributed greatly to raising the level of accounting standards worldwide and reducing the number of differences between international standards and accounting principles used in developed countries, including the United States. It is clear that substantial benefits already are being realized, the most significant of which is convergence on the needs of investors as the primary consideration in the development of global capital market accounting and reporting standards.


IX. Appendices

[Not available in electronic format]

1. Copy of section 509(5) of the National Securities Markets Improvement Act of 1996.

2. IOSCO Working Party No. 1 1994 letters to the IASC identifying essential, suspense and other issues to be addressed in a core standards work program (the "Shiratori letters").

3. July 1995 IOSCO/ IASC press release with July 1995 work program.

4. March 1996 IASC announcement of its accelerated schedule and modified work program.

5. U.S. Securities and Exchange Commission April 1996 press release regarding the IASC's accelerated work program.

6. Sample Working Party No. 1 comment letter.

7. Sample Commission staff comment letters.

8. IASC September 1997 press release regarding the IASC staff proposal to adopt U.S. accounting standards for financial instruments as an interim approach.

9. Form 20-F (for items 17 and 18) and Article 3 of Regulation S-X.

10. Description of IASC organization and operating procedures.


Notes

1 The Commission's basic disclosure requirements with respect to financial statements are set forth in Regulation S-X, 17 C.F.R. §210.

2 See, e.g., §§ 7 and 19(a) and Schedule A of the Securities Act of 1933; §§ 3(b), 12(b) and 13(b) of the Securities Exchange Act of 1934; and §§ 8, 30(e), 31 and 38(a) of the Investment Company Act of 1940.

3 See Accounting Series Release (ASR) 4 (April 25, 1938) and ASR 150 (December 20, 1973).

4 See Section II.C.1 for a description of IOSCO's structure, including the Technical Committee.

5The jurisdictions represented on IOSCO Working Party No. 1 are: Australia, Belgium, the Canadian provinces of Ontario and Quebec, France, Germany, Hong Kong, Italy, Japan, Luxembourg, Mexico, the Netherlands, Spain, Switzerland, the United Kingdom and the United States.

6 The President of IFAC also has the privilege of the floor at IASC Board meetings.

7 The IASC's Strategy Working Party includes two U.S. members. One is a Board member of the Financial Accounting Standards Board (the FASB) and one is a member of the FASB's Board of Trustees, the Financial Accounting Foundation.

8 See footnote 10 in Section II.D.2.

9 Two letters were prepared to address separately the standards revised in the IASC's comparability and improvements project and all other areas.

10 Neither the Technical Committee recommendations nor actions by the full IOSCO membership are binding on IOSCO members. Each jurisdiction would still have to undertake rulemaking or other activity as necessary to implement any IOSCO recommendation.

11 IASC press release, "IASC Accelerates Work Programme," dated April 3, 1996.

12 For the Financial Instruments project, where the IASC previously had issued two Exposure Drafts that it concluded could not form the basis for a final standard, the Board decided to issue both a Discussion Paper and an Exposure Draft.

13 The Commission statement appeared as a press release titled, "SEC Statement Regarding International Accounting Standards," dated April 11, 1996 (see Appendices).

14 The Commission has provided staff to be the IOSCO Observer for the Financial Instruments, Provisions and Contingencies, and Income Taxes steering committees. A final Income Taxes standard was published dated October 1996.

15 Steering Committees meet two to three times a year for two to three days. The IASC Board meets four times a year for five to six days.

16 Commission staff members have attended IASC Board meetings in June and September of 1996 and January, April and July of 1997 as IOSCO Observers.

17 See section V.B.3.c.

18 17 C.F.R. §239.31 and 17 C.F.R. §249.220f, respectively. Modification of Regulation S-X, including Article 4-01(a)(1), 17 C.F.R. §210.4-01, also might be required.

19 These countries include Malaysia, South Africa, Australia, the United Kingdom and China.

20 See Section VII.B.

21 Early Commission reliance on the private sector for setting accounting standards is found in Accounting Series Release No. 4 (April 25,1938).

22 See Rule 3-05 and 3-09 of Regulation S-X, 17 C.F.R. §210, for an explanation of the computation of significance.

http://www.sec.gov/news/studies/acctgsp.htm


Modified:12/12/97